The Court of Justice of the European Union (Court) rendered on 11 March 2015 a judgment on the definition of precise information in the context of insider trading (C-628/13).
The facts of the matter submitted to the Court can be summarised in a nutshell as follows: over a certain time period, a French investment company (IC) acquired financial exposure through an investment in total return swaps (TRS), with shares of a listed company (Target) as an underlying asset. A while after the last acquisition of the TRS, IC decided to convert the financial exposure into actual possession of the shares of the Target.
Following an inquiry, the French regulator (AMF) concluded that IC had the intention from the outset to significantly enter into the shareholding of the Target. Even though IC informed the AMF after each conversion that it exceeded the thresholds of 5%, 10%, 15% and 20% of the Target’s share capital, the AMF’s opinion was that IC had to make the information public way before starting the conversion, at the moment all the TRS were acquired and all details of the financial operation prepared. IC and its president were found guilty and fined.
The case was brought before the French jurisdictions, and before the French Cassation Court. The president of IC argued that information is precise only “[…] if it allows the person in possession of that information to anticipate how the price of the security concerned will change when that information is made public
[…]”, which would not have applied to the case in hand. According to AMF, such interpretation goes way beyond the wording of Directive 2003/6 and 2003/124 in which no reference is made to the direction of the possible effect on the prices of the given financial instruments.
The French Cassation Court requested a preliminary ruling on the notion of precise information.
Pursuant to the Court, it is not apparent from Directive 2003/124 that “‘precise’ information covers only information which makes it possible to determine the likely direction of a change in the prices of the financial instruments concerned
[…]”. The Court ruled that “in order for information to be regarded as being of a precise nature for the purposes of those provisions, it need not be possible to infer from that information, with a sufficient degree of probability, that, once it is made public, its potential effect on the prices of the financial instruments concerned will be in a particular direction
”. Otherwise, according to the Court, the holder of the information “could use any uncertainty in that regard as a pretext for refraining from making certain information public and thus profit from that information to the detriment of the other actors in the market